Chapter 237

2003 -- H 5918 SUBSTITUTE A AS AMENDED

Enacted 07/17/03

A N A C T

RELATING TO CREDIT CARD LENDING

Introduced By: Representatives Kennedy, Lewiss, E Coderre, Menard, and Shanley

Date Introduced: February 12, 2003

It is enacted by the General Assembly as follows:

SECTION 1. Title 6 of the General Laws entitled "Commercial Law -- General

Regulatory Provisions" is hereby amended by adding thereto the following chapter:

CHAPTER 6-26.1

CREDIT CARD LENDING

6-26.1-1. Definitions. -- For purposes of this chapter, the following definitions shall

apply:

(1) “Credit card device” shall include any means of making a credit card transaction

available to a borrower pursuant to a credit card plan, including, but not limited to, a card, draft or

check, identification code, other means of identification, or other credit device or code, whether

made directly or indirectly by means of telephone, point of sale terminal, automated teller

machine, computer or other electronic or other communication or device, or through the mail.

(2) “Credit card lender” or “lender” shall mean any entity that is a lending institution as

defined by section 19-9-1, or licensee as defined by section 19-14-1, which offers or extends

credit in the form of a credit card transaction.

(3) “Credit card transaction” shall mean any loan or extension of credit made pursuant to

a credit card plan. Without limitation of the foregoing, a credit card transaction may be extended

under a credit card plan by a credit card lender’s acquisition of obligations arising out of the

honoring by a merchant, or other third-party, a credit card lender or other financial institution

(whether chartered or organized under the laws of this or any other state, the District of

Columbia, the United States or any district, territory or possession of the United States, or any

foreign country), or a government or governmental subdivision or agency of a credit card device.

(4) “Credit card plan” or “plan” shall mean any arrangement or plan between a borrower

and a credit card lender for open-end, revolving extensions of credit made available through a

credit card device. Provided, however, said “credit card plan” or “plan” does not include an

extension of credit, the repayment of which is secured by real property.

6-26.1-2. Authorization to make loans -- Usury. -- Any credit card lender may, subject

to any limitations on lending authorities contained in its charter or otherwise imposed by law,

offer and extend credit to a borrower and in connection therewith may charge and collect interest,

interest fees and charges, and other charges permitted by this chapter and may take such security

as collateral in connection therewith as may be acceptable to the credit card lender.

6-26.1-3. Variable rates. -- If the agreement governing a credit card plan so provides,

the periodic percentage rate or rates of interest under such plan may vary in accordance with a

schedule or formula. Such periodic rate or rates may vary from time to time as the rate

determined in accordance with such schedule or formula varies and such periodic rate or rates, as

so varied, may be made applicable to all or any part of outstanding unpaid indebtedness under the

plan on or after the first day of the billing cycle that contains the effective date of such variation,

including any such indebtedness arising out of purchases made or loans obtained prior to such

variation in the periodic percentage rate or rates. Without limitation, a permissible schedule or

formula hereunder may include provisions in the agreement governing the plan for a change in

the periodic percentage rate or rates of interest applicable to all or any part of outstanding unpaid

indebtedness, whether by variation of the then applicable periodic percentage rate or rates of

interest, variation of an index or margin or otherwise, contingent upon the happening of any event

or circumstance specified in the plan, which event or circumstance may include, but not be

limited to, the failure of the borrower to perform in accordance with the terms of the plan.

6-26.1-4. Interest. -- A credit card lender may charge and collect interest under a credit

card plan on outstanding unpaid indebtedness in the borrower’s account under the plan at such

daily, weekly, monthly, annual or other periodic percentage rate or rates as the agreement

governing the plan provides or as established in the manner provided in the agreement governing

the plan. If the agreement governing the plan so provides, the outstanding unpaid indebtedness

may include the amount of any interest, interest fees and charges, and other charges outstanding.

Interest may be calculated using an average daily balance, two-cycle average daily balance,

adjusted balance or previous balance method or using any other balance computation method

provided for in the agreement governing the plan. Credit card transactions may be included in the

outstanding unpaid indebtedness as of such time as may be specified in the agreement governing

the plan. Periodic billing cycles may be established in such manner and shall have the duration as

may be specified in the agreement governing the plan.

6-26.1-5. Interest fees and charges. -- (a) In addition to or in lieu of interest at a

periodic percentage rate or rates as provided in section 6-26.1-4, a credit card lender may, if the

agreement governing the credit card plan so provides, charge and collect, as interest, in such

manner or form as the plan may provide, one or more of the following:

(1) Daily, weekly, monthly, annual or other periodic charges in such amount or amounts

as the agreement may provide for the privileges made available to the borrower under the plan;

(2) A transaction charge or charges in such amount or amounts as the agreement may

provide for each separate purchase, loan, or other transaction under the plan;

(3) A minimum charge for each daily, weekly, monthly, annual or other scheduled billing

period under the plan during any portion of which there is an outstanding unpaid indebtedness

under the plan;

(4) Reasonable fees for services rendered or for reimbursement of expenses incurred in

good faith by the credit card lender or its agents in connection with the plan, or other reasonable

fees incident to the application for and the opening, administration and termination of a plan

including, without limitation, commitment, application and processing fees, official fees and

taxes, costs incurred by reason of examination of title, inspection, appraisal, recording, mortgage

satisfaction or other formal acts necessary or appropriate to the security for the plan, and filing

fees;

(5) Returned payment charges or charges imposed for the return of a draft or check drawn

on a credit card plan evidencing an extension of credit under such plan;

(6) Documentary evidence charges;

(7) Stop payment fees;

(8) Overlimit charges;

(9) Automated teller machine charges or other electronic or interchange fees or charges;

(10) Prepayment charges authorized under subsection (b) of this section; and

(11) Subject to any limitations contained in this chapter, such other fees and charges as

are set forth in the agreement governing the plan.

(b) An individual borrower may pay the outstanding unpaid indebtedness charged to the

borrower's account under a plan in full at any time. Except for a charge imposed to terminate a

plan if the agreement governing the plan so provides, a credit card lender may not impose any

prepayment charge in connection with the payment of outstanding unpaid indebtedness in full by

an individual borrower. The terms of prepayment of the outstanding unpaid indebtedness relating

to a credit card plan involving a borrower other than an individual borrower shall be as the lender

and the borrower may agree.

or otherwise unenforceable under any statute or the common law.

6-26.1-6. Overdraft accounts. -- If credit under a credit card plan is offered and

extended in connection with a demand deposit account or other transaction account maintained by

the borrower pursuant to an agreement or arrangement whereby the holder of the deposit account

agrees to honor checks, drafts or other debits to such account, which if paid would create or

increase a negative balance in such account, by making extensions of credit to such borrower

under such credit card plan, any charges customarily imposed under the terms governing such

demand deposit or other transaction account in the absence of any associated credit card plan

(including, without limitation, check charges, monthly maintenance charges, checkbook charges,

charges for checks drawn on funds in excess of an available line of credit and other similar

charges) may continue to be imposed on such account without specific reference thereto or

incorporation thereof by reference in the agreement governing the credit card plan and the amount

of any such charge, to the extent the balance in such demand deposit or other transaction account

is insufficient to pay such a charge, may be charged to the borrower's account under the plan as a

loan thereunder and may be included in outstanding unpaid indebtedness in accordance with the

terms of the agreement governing such credit card plan.

6-26.1-7. Omitted installments. -- A credit card lender may at any time and from time to

time unilaterally extend to a borrower under a credit card plan the option of omitting monthly

installments.

6-26.1-8. Insurance. -- (a) A credit card lender may request but not require an individual

borrower to be insured in respect of a credit card plan under a life, health, accident, health and

accident or other credit or other permissible insurance policy or program, whether group or

individual.

(b) In the case of a borrower borrowing under a credit card plan for other than personal,

household or family purposes, a credit card lender may require the borrower to obtain insurance,

from an insurer acceptable to the credit card lender, under a life, health, accident, health and

accident or other credit or other permissible insurance policy or program, whether group or

individual.

6-26.1-9. Delinquent installments. -- (a) If the agreement governing a credit card plan

so provides, a credit card lender may impose, as interest, a late or delinquency charge upon any

outstanding unpaid installment payments or portions thereof under the plan which are in default;

provided, however, that no more than one such late or delinquency charge may be imposed in

respect of any single such installment payment or portion there, regardless of the period during

which it remains in default; and provided further, however, that for the purpose only of the

preceding provision all payments by the borrower shall be deemed to be applied to satisfaction of

installment payments in the order in which they become due. Nothing contained in this section

shall limit, restrict or otherwise affect the right of a credit card lender to change the percentage

rate or rates of interest applicable to the credit plan between the credit card lender and a borrower

upon the occurrence of a delinquency or default or other failure of the borrower to perform in

accordance with the terms of the plan.

(b) No charges assessed by a credit card lender in accordance with this section shall be

deemed void as a penalty or otherwise unenforceable under any statute or the common law.

6-26.1-10. Attorneys' fees -- Costs. -- In the event a borrower defaults under the terms

of a plan, the credit card lender may, if the borrower's account is referred to an attorney (not a

regularly salaried employee of the credit card lender) or to a third party for collection and if the

agreement governing the credit card plan so provides, charge and collect from the borrower a

reasonable attorneys' fee. In addition, following a borrower's default, the credit card lender may,

if the agreement governing the plan so provides, recover from the borrower all court, alternative

dispute resolution or other collection costs (including, without limitation, fees and charges of

collection agencies) actually incurred by the credit card lender.

6-26.1-11. Amendment of agreement. -- (a) Unless the agreement governing a credit

card plan otherwise provides, a credit card lender may at any time and from time to time amend

such agreement in any respect, whether or not the amendment or the subject of the amendment

was originally contemplated or addressed by the parties or is integral to the relationship between

the parties. Without limiting the foregoing, such amendment may change terms by the addition

of new terms or by the deletion or modification of existing terms, whether relating to plan

benefits or features, the rate or rates of interest, the manner of calculating interest or outstanding

unpaid indebtedness, variable schedules or formulas, interest fees and charges, fees, collateral

requirements, methods for obtaining or repaying extensions of credit, attorneys' fees, plan

termination, the manner for amending the terms of the agreement, arbitration or other alternative

dispute resolution mechanisms, or other matters of any kind whatsoever. Unless the agreement

governing a credit card plan otherwise expressly provides, any amendment may, on and after the

date upon which it becomes effective as to a particular borrower, apply to all then outstanding

unpaid indebtedness in the borrower's account under the plan, including any such indebtedness

that arose prior to the effective date of the amendment. An agreement governing a credit card

plan may be amended pursuant to this section regardless of whether the plan is active or inactive

or whether additional borrowings are available thereunder. Any amendment that does not increase

the rate or rates of interest charged by a credit card lender to a borrower under section 6-26.1-3 or

section 6-26.1-4 of this chapter may become effective as determined by the credit card lender,

subject to compliance by the credit card lender with any applicable notice requirements under the

truth in lending act (15 U.S.C. sections 1601 et seq.), and the regulations promulgated thereunder,

as in effect from time to time. Any notice of an amendment sent by the credit card lender may be

included in the same envelope with a periodic statement or as part of the periodic statement or in

other materials sent to the borrower.

(b)(1) If an amendment increases the rate or rates of interest charged by a credit card

lender to a borrower under section 6-26.1-3 or section 6-26.1-4 of this chapter, the credit card

lender shall mail or deliver to the borrower, at least fifteen (15) days before the effective date of

the amendment, a clear and conspicuous written notice that shall describe the amendment and

shall also set forth the effective date thereof and any applicable information required to be

disclosed pursuant to the following provisions of this section.

(2) Any amendment that increases the rate or rates of interest charged by a credit card

lender to a borrower under section 6-26.1-3 or section 6-26.1-4 of this chapter may become

effective as to a particular borrower if the borrower does not, within fifteen (15) days of the

earlier mailing or delivery of the written notice of the amendment (or such longer period as may

be established by the credit card lender), furnish written notice to the credit card lender that the

borrower does not agree to accept such amendment. The notice from the credit card lender shall

set forth the address to which a borrower may send notice of the borrower's election not to accept

the amendment and shall include a statement that, absent the furnishing of notice to the credit

card lender of nonacceptance within the referenced fifteen (15) day (or longer) time period, the

amendment will become effective and apply to such borrower. As a condition to the

effectiveness of any notice that a borrower does not accept such amendment, the credit card

lender may require the borrower to return to it all credit devices. If, after fifteen (15) days from

the mailing or delivery by the credit card lender of a notice of an amendment (or such longer

period as may have been established by the credit card lender as referenced above), a borrower

uses a plan by making a purchase or obtaining a loan, notwithstanding that the borrower has prior

to such use furnished the credit card lender notice that the borrower does not accept an

amendment, the amendment may be deemed by the credit card lender to have been accepted and

may become effective as to the borrower as of the date that such amendment would have become

effective but for the furnishing of notice by the borrower (or as of any later date selected by the

credit card lender).

(3) Any amendment that increases the rate or rates of interest charged by a credit card

lender to a borrower under section 6-26.1-3 or section 6-26.1-4 of this chapter may, in lieu of the

procedure referenced in paragraph (2) of this section, become effective as to a particular borrower

if the borrower uses the plan after a date specified in the written notice of the amendment that is

at least fifteen (15) days after the mailing or delivery of the notice (but that need not be the date

the amendment becomes effective) by making a purchase or obtaining a loan; provided, that the

notice from the credit card lender includes a statement that the described usage after the

references date will constitute the borrower's acceptance of the amendment.

(4) Any borrower who furnishes timely notice electing not to accept an amendment in

accordance with the procedures referenced in paragraph (2) of this section and who does not

subsequently use the plan, or who fails to use such borrower's plan as referenced in paragraph (3)

of this section, shall be permitted to pay the outstanding unpaid indebtedness in such borrower's

account under the plan in accordance with the rate or rates of interest charged by a credit card

lender to a borrower under section 6-26.1-3 or section 6-26.1-4 of this chapter without giving

effect to the amendment; provided, however, that the credit card lender may convert the

borrower's account to a closed end credit account on credit terms substantially similar to those set

forth in the then-existing agreement governing the borrower's plan.

(5) Notwithstanding the other provisions of this section, no notice required by this section

of an amendment of an agreement governing a credit card plan shall be required, and any

amendment may become effective as of any date agreed upon between a credit card lender and a

borrower, with respect to any amendment that is agreed upon between the credit card lender and

the borrower, either orally or in writing.

be deemed to increase the rate or rates of interest charged by a credit card lender to a borrower

under section 6-26.1-3 or section 6-26.1-4 of this chapter:

(1) A decrease or increase in the required number or amount of periodic installment

payments;

(2) Any change to a plan that increases the rate or rates in effect immediately prior to the

change by less than one-quarter (¼) of 1 percentage point per annum; provided that a credit card

lender may not make more than one such change in reliance on this paragraph with respect to a

plan within any twelve (12) month period;

(3)(A) A change in the schedule or formula used under a variable rate plan under section

6-26.1-3 of this chapter that varies the determination date of the applicable rate, the time period

for which the applicable rate will apply or the effective date of any variation of the rate, or any

other similar change; or

(B) Any other change in the schedule or formula used under a variable rate plan under

section 6-26.1-3 of this chapter; provided, that the initial interest rate that would result from any

such change under this paragraph (3), as determined on the effective date of the change or, if the

notice of the change is mailed or delivered to the borrower prior to the effective date, as of any

date within sixty (60) days before mailing or delivery of such notice, will not be an increase from

the rate in effect on such date under the existing schedule or formula.

(4) A change from a variable rate plan to a fixed rate, or from a fix rate to a variable rate

plan so long as the initial rate that would result from such a change, as determined on the

effective date of the change, or if the notice of the change is mailed or delivered to the borrower

prior to the effective date, as of any date within sixty (60) days before mailing or delivery of such

notice, will not be an increase from the rate in effect on such date under the existing plan;

(5) A change from a daily periodic rate to a periodic rate other than daily or from a

periodic rate other than daily to a daily periodic rate; and

(6) A change in the method of determining the outstanding unpaid indebtedness upon

which interest is calculated (including, without limitation, a change with respect to the date by

which or the time period within which a new balance or any portion thereof must be paid to avoid

additional interest).

(d) The procedures for amendment by a credit card lender of the terms of a plan to which

a borrower other than an individual borrower is a party may, in lieu of the foregoing provisions of

this section, be as the agreement governing the plan may otherwise provide.

6-26.1-12. Materiality of terms. -- All terms, conditions and other provisions of and

relating to a credit card plan as contained in this chapter or any other applicable chapter, or in the

agreement governing the plan (other than those which are interest under this chapter,) including,

without limitation, provisions relating to the method of determining the outstanding unpaid

indebtedness on which interest is applied, time periods within which interest or interest fees and

charges may be avoided, reasons for default and the right to cure any default, right to accelerate,

account cancellation, choice of law, change in terms requirements, right to charge and collect

attorneys' fees, court and collection costs and the compounding of interest or interest fees and

charges, shall be and hereby are deemed to be material to the determination of interest applicable

to a plan under Rhode Island law, under the most favored lender doctrine, and under section 85 of

the national credit card lender act (12 U.S.C. section 85) or section 521 of the depository

institutions deregulation and monetary control act of 1980 (12 U.S.C. section 1831d).

6-26.1-13. Applicable law. -- An agreement governing a credit card plan shall be

governed by the laws of the state of Rhode Island, and any other law of this state limiting the rate

or amount of interest, discounts, points, finance charges, service charges or other charges or fees

shall not apply to extensions of credit under a credit card plan operated in accordance with this

chapter.

SECTION 2. Section 6-26-2 of the General Laws in Chapter 6-26 entitled "Interest and

Usury" is hereby amended to read as follows:

6-26-2. Maximum rate of interest. -- (a) Subject to the provisions of title 19, no person,

partnership, association, or corporation loaning money to or negotiating the loan of money for

another, except duly licensed pawnbrokers, shall, directly or indirectly, reserve, charge, or take

interest on a loan, whether before or after maturity, at a rate which shall exceed the greater of

twenty-one percent (21%) per annum or the alternate rate specified in subsection (b) of this

section of the unpaid principal balance of the net proceeds of the loan not compounded, nor taken

in advance, nor added on to the amount of the loan.

(b) The alternate rate means the rate per annum which is equal to nine percentage points

(9%) plus an index which is the domestic prime rate as published in the Money Rates section of

The Wall Street Journal on the last business day of each month preceding the later of the date of

the debtor's agreement or the date on which the interest rate is redetermined in accordance with

the terms of the debtor's agreement. If the Wall Street Journal ceases publication of the prime

rate, the director of business regulation shall designate a substantially equivalent index. In the

event an index is published as a range of rates, then the lowest rate shall be the index.

(i) Charges pursuant to chapters 30 and 31 of title 27;

(ii) Premiums for insurance in an amount not exceeding the reasonable value of property

offered as security for a loan against any substantial risk of loss, liability, damage, or destruction

in conformity with the insurance laws of this state;

(iii) Premiums for insurance providing loss of income or involuntary unemployment

coverage if the coverage is not a factor in the approval by the lender of the extension of credit and

the debtor gives specific written indication that the cost of this coverage has been conspicuously

disclosed to the debtor, that the debtor realizes that the coverage is not a condition for the

extension of credit, and that the debtor voluntarily desires the coverage;

(iv) Commercial loan commitment or availability fees to assure the availability of a

specified amount of credit for a specified period of time or, at the borrower's option,

compensating balances in lieu of the fees;

(v) Reasonable attorney's fees customarily charged for the preparation of loan, security,

or mortgage documents and for the collection of defaulted loans;

(vi) Fees for title examination or title insurance;

(vii) Other customary and reasonable costs incident to the closing, supervision, and

collection of loans in this state; and

(viii) Consideration received for the redemption, sale, transfer, or other disposition of

equity securities by a small business investment company licensed under the provisions of the

"Small Business Investment Act of 1958", 15 U.S.C. section 631 et seq., as amended, or an entity

which would qualify for regulation as a business development company under the provisions of

the "Investment Company Act of 1940", 15 U.S.C. section 80a-1 et seq., as amended, whether or

not the equity securities were acquired by a small business investment company or business

development company in connection with or as an incident to the extension of credit.

(2) Any of the preceding charges, if paid or advanced by the lender, may be considered

part of the net proceeds of the loan, and if paid by the debtor, shall not be deducted from the net

proceeds of the loan.

(d) Notwithstanding anything to the contrary in this chapter or in any other provision of

Rhode Island law, ~~with respect to credit card transactions:~~

~~(1) The provisions of subsection (a) of this section shall not be applicable;~~

~~(2) The interest rate shall be as agreed upon between lender and debtor; and~~

~~(3) The following fees shall be construed as interest: fees for late payment, cash advance~~

~~fees, overlimit fees, returned check fees, and annual membership fees.~~ the provisions of this

chapter shall not be applicable with respect to credit card transactions as defined in chapter 6-

26.1. Said chapter 6-26.1 shall apply exclusively to all such transactions.

(e) Notwithstanding the provisions of subsection (a) of this section and/or any other

provision in this chapter to the contrary, there is no limitation on the rate of interest which may be

legally charged for the loan to, or use of money by, a commercial entity, where the amount of

money loaned exceeds the sum of one million dollars ($1,000,000) and where repayment of the

loan is not secured by a mortgage against the principal residence of any borrower; provided, that

the commercial entity has first obtained a pro forma methods analysis performed by a certified

public accountant licensed in the state of Rhode Island indicating that the loan is capable of being

repaid.

SECTION 3. This act shall take effect on January 1, 2004.

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LC01414/SUB A

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